America’s SBDC Blog

A “Forbes 100 Best Websites for Entrepreneurs”

7 Ways to Improve Your Business By Leveraging Debt

February 28, 2022

Author: Sharita M. Humphrey

Debt has a bad reputation. If you’re thinking of high-interest credit cards and financing that exceeds your ability to pay, that kind of debt deserves the bad rap. However, as a business owner or entrepreneur, you’ll experience times when debt is necessary to take your business to the next level. We call this debt financing.


debt financing image, the photo shows a person with 3 bills in the hand


Understanding Debt Financing

Simply put, debt financing is borrowing money from an investor, bank, government entity, or another company in order to finance your current business needs. You’ll agree to repay the loan, plus interest, in a given timeframe.

How is debt financing beneficial to your business?

As a business owner, you take risks in order to grow your business. Debt financing is no different. If you evaluate the amount of risk as compared to the level of benefit you expect to see from the investment, you can make a well-informed decision about whether financing is right for you.

Here are a few key ways to improve your business by leveraging debt.

  1. Maintain Business Ownership

    The foremost advantage of this is that the ownership and control of your business remains yours (or with the shareholders). Despite the necessary fees and interest, the lender does not gain control over how you run your business. And in a worst-case scenario in which you end up defaulting on the loan, only the collateral is taken and not your entire business.

  2. Reduce Government Taxes

    Debt financing is also a practical action to pursue as the government allows you to file for a tax deduction on the fees, interests, and other charges related to this type of financing. This means your business will not have a double tax payment for the same charges.

  3. Provide a More Affordable Financing Option

    As opposed to equity financing, wherein a portion of the business is sold off to the investors, debt financing simply focuses on settling the debt and its interests. Debt payment is the only obligation for the business, so you don’t have to fear reducing a portion of your business when the journey gets shaky.

  4. Easy Access

    Debt financing is relatively easy to obtain. Unlike taking on an investor, you don’t have to go through rigorous investor evaluation or serious negotiations to determine what percentage of the business will be owned by you and your investor. You simply apply for this kind of debt with its straightforward process and prepare to pay the principal and interest as your agreement dictates.

  5. Build Credit History

    As a business owner, acquiring good credit history will allow you to continue to access great credit options in the future. Managing the repayment of your financing loan will demonstrate your responsibility in handling your credit in a consistent and timely manner. Debt financing gives you the chance to strengthen your business credit, making it easier to apply and be granted financial backing as your company continues to grow.

  6. Enable Good Planning

    Settling your fees and interest with debt financing can be established through adequate planning. Because the amount you pay is fixed, you can project your expenses specifically month after month. Your business budget will be simpler, leaving you free to plan your other expenses.

  7. Presents Flexible Loan Options

    Similar to any other type of loan, debt financing is also good because you have the option to decide whether you’re paying it in the short term or long term. Depending on your current business needs, the timeliness of settling your debt could be flexible. You and your lender can discuss the pros and cons of the different timelines available.


When is the right time to start debt financing?

Gaining adequate knowledge in this topic is a wise action as you nurture your business towards growth. Everybody wants growth and progress, no question on that. As you do your research, you’ll be able to decide if financing is the right decision for your business at this time.

Look for reliable information and trusted advisors. You can navigate your business path wisely when you are confident you have the backup you need.

Where do you go from here?

At the end of the day, exploring the options in debt financing for your business is up to you as a business owner.

Most importantly, do your due diligence to make an informed decision before you jump into any crucial financing decisions. If you want to learn more about business financing and other financial principles, reach out to us. We would be honored to help you on your journey.

And if you also have any insights or experiences to share regarding debt financing, leave a comment below. We look forward to hearing from you.

About the Author: Sharita M. Humphrey is an award-winning finance expert, money mentor and Certified Financial Education Instructor. Once broke and homeless, Sharita completely transformed her life and is now a successful entrepreneur and one of the most in-demand money coaches for individuals and business owners of color. In 2020, Sharita was named National Financial Educator of the Year.

5 Reasons You’re Not Getting Business Financing

February 21, 2022

By: Sharita Humphrey

Business Financing refers to money borrowed from a bank or investor to finance equipment, products, or services that the business needs in order to grow. When setting up your business, you’re likely to apply for financing to get your business off the ground. However, there are several reasons your application might be denied.

In fact, according to 2021 statistics, it was reported that 9% of small businesses that applied for a business loan did not receive any capital.


Credit Score image


Here are 5 reasons why you’re not getting business funding:

  1. Credit score.
    A company with a low business credit score is going to have a hard time getting approval for a business loan application. According to 2021 statistics, 36% of small businesses were denied funding due to low credit scores. Credit score plays an important part not just in business but in personal life as well. Most banks and financial institutions look at both the business owner’s personal credit score and the company’s business credit score to determine the interest rate and loan eligibility. When applying for business financing, make sure to keep track of your credit score to avoid being rejected.
  2. No collateral.
    Before institutions lend money, they require collateral in case the borrower becomes unable to repay the loan. The amount of money they will lend depends on the value of assets the business has as well. The higher the value of the collateral, the more money they will consider lending. However, if your company is new, with no little to no physical assets, you may have to offer up personal assets (cars, homes, etc.) as collateral. If you aren’t willing to make this decision, you might face a rejection of your financing application. Lack of collateral has become the biggest for small businesses being unable to secure financing.
  3. Insufficient cash flow.
    Banks will be hesitant to grant loans to small businesses that don’t offer a large enough cash flow to pay off the loan. Often, small businesses struggle to maintain financial stability especially when they’re still starting up. This is partly because they have to pay off rent, third-party suppliers, equipment, and employee wages. In order to secure a business loan, first check to make sure that you’re bringing in more profits than you’re paying out in expenses. You need to have cash flow to be considered for business financing.
  4. Too much debt.
    When you apply for a business loan, a bank will look at past loans, whether you were able to pay them off and how efficiently. If they discover one or more ongoing debts, they may reconsider your application. It doesn’t look good for a business to have too much debt as it shows poor financial management and low income. Settle past debts and make sure they’re paid on time and properly, so you’ll have more loan opportunities to expand your business.
  5. Too early into the business.
    Most banks won’t lend finances to emerging small businesses since it may be a risky venture. Lending money to a small start-up business is like taking a leap of faith. Either you’ll profit from the continuous payments when the business booms or fall when it fails. There’s no guarantee that the business will make enough profit, much less pay off the loan. Banks or investment companies will need security that a business can grow and continue to make payments.

Now that you’ve considered reasons your application may have been denied, here are a few things you can keep in mind when applying for business financing:

  • When starting a business, create a thorough business plan and demonstrate an understanding of investments. Engage and upgrade your business vision so that investors won’t regret investing in your business. Look for multiple investors to ensure you have enough funding.
  • Crowdsourcing is a good way to find investors. If your business is too small to go to traditional banks for a business loan, you may want to consider alternatives that are willing to invest in small businesses. You may find small firms or financial institutions whose purpose is to help startups or small businesses get off the ground. Double-check to make sure they are legitimate to ensure you won’t suffer loss through scams.
  • Know your business. Do your research. It’s going to be difficult to get funding for your start-up business if you don’t know what you need to do. Research the requirements for a business loan, get statistics on approval rates, reach out to a few investors and plan out your business strategy to keep your company afloat.


Most business loan rejections are due to the five points above. But you can set your business up for success by creating a solid business plan, doing your research, and managing your finances well from the start. Work your way toward not needing to apply for any more business loans with a healthy cash flow and strong profits.





Top 5 Business Loan Options for LLCs in 2022

February 14, 2022 1 Comment

By: Matthew Gillman

If you’re running a limited liability company (LLC), you may find you need to raise money or get a small business loan to start up or fuel growth. Many small business fail in their early years simply because they ran out of cash, or they weren’t able to plan their finances well.

This is where a business loan comes in: you could use more capital to fund your LLC’s expansion, get more manpower, and purchase equipment or hardware. You could also use the money to pay down debts or have for emergencies.

Below are the different business loan options you should consider for your LLC.

Photo of doors, meaning the loan options
5 Best Business Loan Options for LLCs

  1. Bank loans
    • Traditional lenders like banks and credit unions offer the most ideal loan amounts, terms and interest rates, which is why many business owners apply from them.
    • However, your business must meet their strict qualification requirements, such as high credit scores and longer time in business. The reason for this is that banks need to minimize their risk of loan payment defaults. And they have a good reason for it.
    • During an economic downturn, smaller companies are riskier to invest in than their larger counterparts due to a number of reasons such as lack of credit history or increased regulation. This makes it difficult for many LLCs and startup businesses to obtain a loan from banks.
  2. Term loans
    • Business term loan is a type of traditional business financing where you repay your lender over a specified period. This ranges anytime between a few months to ten years, depending on the stability, structure and credit standing of your LLC.
    • In some instances, lenders may require you to put up collateral to secure lower interest rates or higher loan amounts. Collateral provides security for the lender so you have to be willing to risk your assets to get a term loan.
  3. Business line of credit
    • A business line of credit is one of the most ideal types of alternative financing, simply because you are given access to capital on an as-needed basis. With a line of credit, you are not required to use the full amount granted to you; instead, you can draw money from your account whenever you need cash and pay it back with interest.
    • What’s great about a line of credit is you don’t have to pay a fixed amount of loan repayments or interests if you didn’t use the money. It’s also a revolving credit, so you can just repay what you’ve used and withdraw the funds again in the future.
  4. SBA loans
    • SBA loans are those that come from private lenders and banking institutions but are backed by the Small Business Administration. The terms usually range anywhere between 10 to 25 years, with interest rates that are favorable to small businesses and startups.
    • There are different types of SBA loans: SBA 7(a) loans, 504 loans, disaster loans, microloans, and express loans. The most popular is the 7(a) loan, which gives you up to $750,000 worth of loan amount plus a partial guarantee from the SBA. To give you an idea, the SBA guarantees 85% of the loan up to $150,000 and 75% if the loan amount is more than $150,000.
    • SBA loans may be used for short- and long-term working capital for office repairs, debt refinancing, or purchase of new equipment. Note that the qualification requirements to get an SBA 7(a) loan includes a tangible net worth between $2.5 million and $7 million, plus a good personal credit score and strong business cash flow statement.
  5. Invoice financing
    • Last but not the least is invoice financing, which allows you to use unpaid invoices as collateral in exchange for upfront capital. With this type of financing, lenders will give you 80% to 95% of the total value of your invoice. You will receive the remaining 5% to 20% of the invoice value (minus service charges and transaction fees) once your customers pay.
    • Invoice financing is a preferred option by many businesses because it frees up the cash tied to their outstanding invoices. It’s also easy to have your application approved, since lenders would not require you to have a good credit rating. What’s more important to your lender is your customers’ creditworthiness.
    • This is a good financing option for companies in the B2B space. Lenders are happy to accommodate invoice financing applications from business in the transportation, logistics, wholesale, manufacturing and technology industries, but all types of LLCs will benefit as well.

More capital means more room for growth

Ensuring that the business has sufficient funds and maintains positive cash flow will almost always guarantee its success. Financing helps bring in more stability to the LLC, since company owners have capital to make strategic growth decisions.

If you’re not sure where to start, talk to a finance expert and ask about your options. Ideally, find someone who’s already familiar with your industry to increase your chances of getting loan approvals.


Matthew Gillman is a business financing expert with more than a decade of experience in commercial lending. He is the founder and CEO of SMB Compass, a specialty finance company providing education and financing options for business owners.

5 Reasons You Might Be Rejected for Financing

November 16, 2021
By: Matthew Gillman – 

BankMany small business owners have experienced, or are continuing to experience, the harsh impact of the COVID-19 pandemic. In navigating through this tough time, many company owners have sought to apply for financing to keep their doors open.

That said, small business owners are not always seen as the most desirable loan candidates in the eyes of lenders. In fact, the latest Small Business Credit Survey published by the Federal Reserve Banks revealed that the approval rates for small business loans, credit lines, and merchant cash advances all declined after the onset of the pandemic. (more…)

Is There Really Good Debt and Bad Debt?

November 9, 2021
By Mobilization Funding – 

MoneyYou know the old saying, “You have to spend money to make money.” Growth takes capital, and for a lot of small businesses, that extra cash is going to come in some form of debt.

If the very thought of taking out a loan to finance growth makes you shudder, you’re not alone. A lot of small business owners avoid debt like the plague, and when they do seek financing, it is usually in dire circumstances.

Which is actually part of the problem. If your only experience with debt is emergencies, chances are your perspective on debt is negative. (more…)